The Absolute Arbitrageur

When Genius Failed: The Rise and Fall of Long Term Capital Management

2011-11-27T00:40:00.001+01:00

This book should be in every hedge fund manager's desk. It's a great reminder that "the market can stay irrational longer than you can stay solvent".

Bridgewater's Dalio shares some insights with New Yorker magazine

2011-11-26T00:39:00.000+01:00

Some excerpts from the New Yorker magazine interview:

"To guide its investments, Bridgewater has put together hundreds of “decision rules.” These are the financial analogue of Dalio’s Principles. He used to write them down and keep them in a ring binder. Today, they are encoded in Bridgewater’s computers. Some of these indicators are very general. One of them says that if inflation-adjusted interest rates decline in a given country, its currency is likely to decline. Others are more specific. One says that, over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock. If the market price of gold moves a long way from this level, it may indicate a buying or selling opportunity."

"Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said."

Read the full interview on New Yorker:
http://www.newyorker.com/reporting/2011/07/25/110725fa_fact_cassidy?currentPage=1

Money Mavericks: Confessions of a Hedge Fund Manager

2011-11-24T22:23:00.000+01:00

This is an amazing book for all the hedge fund managers wannabes.

Lars tells us about how he founded Holte capital, the problems he faced raising capital, managing the day to day operations and finally about his decision to close the fund.

Definitively a must read.

Portfolio Tracker

2010-08-10T23:41:00.002+01:00

I have been looking around for something like this for a while, since all I could find was either paid or not good enough I made my own portfolio tracker.

It is made to be used with xlq (http://www.qmatix.com/XLQ.htm) to automatically retrieve stock quotes but can be used with Bloomberg, Reuters or any other data source (you just have to have access to their data).

By the way, I have been testing XLQ for a while and I believe there is no other program like it on the market, it is definitely worth testing.

https://spreadsheets.google.com/ccc?key=0AqB3hUTSRi9rdEQzZ2swaTNBakk5bWlUdGpkNWRxamc&hl=en_EN&authkey=CKTxsKsO#gid=0

The House of Morgan

2010-08-10T23:18:00.000+01:00

I have just finished reading The House of Morgan by Ron Chernow, it is a great book, not only about the history of JP Morgan and Morgan Stanley but also about the history of modern banking.

5 lessons I learned from the crisis

2010-05-07T15:09:00.001+01:00

1. Although your stocks can be fundamentally great, they can still be technically bad and make you loose money.
2. After selecting the stocks in which to invest from fundamental indicators, always look at the candlesticks.
3. Always define your stop losses and take profits before buying a stock.
4. Buy and hold may be good, but when stock prices start falling, is better to sell then keep losing money.
5. Diversification is great, but it dosen't work if all your asset classes's correlations increase.

Great article on rating agencies

2010-04-29T10:29:00.001+01:00

From the FT: http://www.ft.com/cms/s/0/28df0210-52f8-11df-813e-00144feab49a.html

"The organisations on political trial last Friday were the ratings agencies Moody's and Standard & Poor's, which played a more central role than any investment bank in the failure of so many investment-grade securities. If all the subprime mortgage securities they rated triple A had not turned to junk, no bail-outs would have been required.
The stories that former Moody's and S&P employees told at that hearing – of the agencies trying to please investment banks that were paying big fees to get high ratings – cast doubt on a central plank of how the fixed-income markets are supposed to work. Why should investors place faith in these over-rated bond market guardians again?
Ratings agencies have been criticised in past crises – most recently in the aftermath of Enron's collapse – for lending their approval to dubious bonds and issuers. Their failings in the housing bubble were much greater. Yet, despite shareholder lawsuits against the agencies and some political heat, there is little sign that their quasi-official status – or their business models – will be substantially changed. The financial reform bill that is still blocked on Capitol Hill has placed other priorities, such as derivatives regulation, above them.
That is unfortunate. If the crisis proves anything, it is that the agencies enjoy too much authority among investors and regulators. Any reform that would loosen their grip on bond markets deserves a shot.
This was a triple-A crisis. The banks and insurance companies that came close to failure believed so implicitly in the safety of "super-senior" mortgage debt that they were willing to stuff their balance sheets with it. They would never have taken such a punt on high-yield securities or equity tranches of collateralised debt obligations (CDOs)."

How to solve the rating agencies problem

2010-04-29T09:37:00.000+01:00

I have given this some thought and I finally believe to have arrived at simple solution for the conflicts of interests arising from rhe fact that the ratees pay the raiter to be rated.

If the rating agencies where liable for their ratings (in case the rating given was proven completly wrong, say AAA to junk in a year or so) the rating agencies would have to pay the investors a part of their investment.

It seems to me a easy and quick solution to better align everybody interests.

SEC charges GS with fraud

2010-04-16T19:56:00.001+01:00

Link to the SEC document: http://www.sec.gov/litigation/complaints/2010/comp-pr2010-59.pdf

Via FTAlphaville: http://ftalphaville.ft.com/blog/2010/04/16/204976/the-case-involving-abacus-2007-ac1/

Article on China - Africa relations

2010-04-15T17:27:00.001+01:00

"All across Africa, new tracks are being laid, highways built,ports deepened, commercial contracts signed—all on an unprecedented scale, and led by China, whose appetite for commodities seems insatiable. Do China's grand designs promise the transformation,at last, of a star-crossed continent? Or merely its exploitation? The author travels deep into the heart of Africa, searching for answers."

From Teh Atlantic: http://www.theatlantic.com/magazine/archive/2010/04/the-next-empire/8018/

Wine as an asset class

2010-03-31T09:29:00.002+01:00

""Wine in a portfolio has produced higher returns and lower risks than the Russell 3000 equity index ... Especially in times of economic downturns" they said in a report in the American Association of Wine Economists.

...

Wines selling below $200 a bottle saw a steady increase over the 13-year period and yielded a return of 120 percent, while those selling for under $100 a bottle generated a 170 percent return.

Wines selling for more than $200 and especially those over $400 a bottle, such as Chateau Petrus or Chateau Haut-Brion, had a three-to-four-fold price increase. These wines also suffered the most declines during the financial crisis, losing about 25 percent. Wines under $200 a bottle lost between 5 percent and 10 percent during that time."

From Reuters: http://www.reuters.com/article/idUSTRE62T2L320100330

Moodys new structured finance symbol

2010-03-16T12:00:00.002+01:00

One think I really don't understand from this crisis is how the rating agencies managed to get by with only a slap on the wrist... rating things they didn't understand...

Finaly someone starts doing something about it:

"Basically any agency that wants European registration needs to come up with a structured finance symbol to distinguish structured finance ratings from the ratings of other securities.
It's part of a European attempt to strengthen the (sf) aspect of the ratings business.
And the regulation does have some useful things in it. For example, under the new rules agencies should not be able to make recommendations on how securitisations are structured. That's something which occurred quite frequently pre-financial crisis, when agencies shed their traditionally-passive role in favour of actively advising clients on how to structure deals to achieve the best possible rating.
But, structured finance symbol aside, some of the European regulation really ticks the `odd' (or at least, `redundant' ) box. For instance, the directive recommends agencies that rate securitisations have at least one supervisory member with "in-depth knowledge and experience at a senior level of the markets in structured finance instruments." Well, you would hope (pray?).
Another requirement prevents ratings analysts from working for organisations they rated at some point or another. Some commentators have already pointed out that this limitation might be irrelevant in the case of structured finance, since securitisation-issuers are generally special-purpose vehicles – essentially shell companies unlikely to require their own analysts. Strangely, the employment limits do not appear to apply to analysts leaving agencies to work for companies who actually arrange SF deals."

From FT Alphaville: http://ftalphaville.ft.com/blog/2010/03/16/176186/sf-stands-for-structured-finance/

Time to buy an island

2010-03-11T16:16:00.002+01:00

From Reuters:

http://www.reuters.com/article/idUS244992404720100308?loomia_ow=t0:s0:a49:g43:r1:c0.122120:b31821618:z0

"The Greek government is being urged to sell its uninhabited islands to bail itself out of bankruptcy, and the UK is likely to find itself in the same position in the near future. What better time to explore the possibility of buying an island together with a group of friends, and setting up an off-grid community there with your own laws, government and even currency?

...

Sanda, off the tip of the Mull of Kintyre, is once again on the market (for offers over 2.75 million euros). And Little Cumbrae, in the Firth of Clyde, could be yours for offers over 2.5 million euros Islands off New Zealand were highly prized because, in the worst terror scenario - bombing of nuclear power stations - the winds come from the South Pole And until now the idea of buying an island has been the preserve of the wealthy - after all once you have bought it, you still have to get there and bring in supplies.
Private Greek islands such as St Athanasios are already on the market from 1 million euros, with no mod cons. There are 3,054 Greek islands and only 87 are inhabited. And the betting is that the vast majority of the deserted ones belong to the State.

...

Private Islands Inc., a Toronto firm specializing in the marketing and sale of islands says: "If you want to buy a private island you have to deal with us. We have those secret islands everyone wants to know about," Chris Krolow, chief executive officer adds: "Recent technological advances in solar and wind power have made many previously uninhabitable islands "viable places to live," and that means more islands than ever are coming on to the marketplace, he said
"Salt water can be turned into drinking water and modular, prefab homes have made building more accessible," Krolow says.
Still, building on an island in the middle of nowhere comes with its own challenges.
"Something always pops up," he says. "Like squatters or government crackdowns or issues with foreign ownership or various regulators. Even modern day pirates.
"But if you can get through all this - you have to be determined and self-sufficient - you typically have something special The company currently has about 500 islands for sale, starting at $27,900 for the 0.32 hectare Davis Island in Nova Scotia. Davis Island sits about 100 metres offshore and provides good boat anchorage off its shores.
At the other end of the price scale is Lisbon Island, about 300 metres offshore from the city of Lisbon, the capital of Portugal. It's available for 245 million euros ($391.8 million) and comes with plans for a golf resort with a luxury hotel and spa.
Or $100 million (U.S.) could buy the 809 hectare Ronde Island in Grenada. The parcel is described on Private Islands website as "isolated and untouched," with miles of pristine beach and several large, protected anchorages. The website says Ronde Island has "superb visibility (that) typically exceeds 100 feet, and turtles, large pelagics and green moray eels are common."
About 70 per cent of the islands on offer are undeveloped, though others come equipped with mansions or resorts. "These islands are owned by celebrities and CEOs and they value their privacy," Krolow says.

Water supply is one of the first hurdles facing Greek island buyers. Building offshore is costly too. Renting a barge to transport materials to your island could set you back EUR30,000 a month - less if you know the barge owner and marry his daughter.
"Islands without building permits are literally worthless," said Mr Vladi. The key factor is location - proximity to doctors and food suppliers. "Solar panels, satellite dishes, cheap desalination and the internet have transformed island living," said Mr Vladi. But the costs should not be underestimated. Some 10 per cent of the investment value of an island is likely to go on staff and maintenance, and transport to the mainland can be expensive. Many islands are deserted because they are barren, dusty outcrops of rock."

Leonardo Da Vinci CV's

2010-02-09T19:04:00.002+01:00

If you need inspiration on your cover letter/CV read this letter from Leonardo Da Vinci applying for a position with the Duke of Milan:

"Most Illustrious Lord, Having now sufficiently considered the specimens of all those who proclaim themselves skilled contrivers of instruments of war, and that the invention and operation of the said instruments are nothing different from those in common use: I shall endeavor, without prejudice to any one else, to explain myself to your Excellency, showing your Lordship my secret, and then offering them to your best pleasure and approbation to work with effect at opportune moments on all those things which, in part, shall be briefly noted below. 1. I have a sort of extremely light and strong bridges, adapted to be most easily carried, and with them you may pursue, and at any time flee from the enemy; and others, secure and indestructible by fire and battle, easy and convenient to lift and place. Also methods of burning and destroying those of the enemy.
2. I know how, when a place is besieged, to take the water out of the trenches, and make endless variety of bridges, and covered ways and ladders, and other machines pertaining to such expeditions.
3. If, by reason of the height of the banks, or the strength of the place and its position, it is impossible, when besieging a place, to avail oneself of the plan of bombardment, I have methods for destroying every rock or other fortress, even if it were founded on a rock, etc.
4. Again, I have kinds of mortars; most convenient and easy to carry; and with these I can fling small stones almost resembling a storm; and with the smoke of these cause great terror to the enemy, to his great detriment and confusion.
5. And if the fight should be at sea I have kinds of many machines most efficient for offense and defense; and vessels which will resist the attack of the largest guns and powder and fumes.
6. I have means by secret and tortuous mines and ways, made without noise, to reach a designated spot, even if it were needed to pass under a trench or a river.
7. I will make covered chariots, safe and unattackable, which, entering among the enemy with their artillery, there is no body of men so great but they would break them. And behind these, infantry could follow quite unhurt and without any hindrance.
8. In case of need I will make big guns, mortars, and light ordnance of fine and useful forms, out of the common type.
9. Where the operation of bombardment might fail, I would contrive catapults, mangonels, trabocchi, and other machines of marvellous efficacy and not in common use. And in short, according to the variety of cases, I can contrive various and endless means of offense and defense.
10. In times of peace I believe I can give perfect satisfaction and to the equal of any other in architecture and the composition of buildings public and private; and in guiding water from one place to another.
11. I can carry out sculpture in marble, bronze, or clay, and also I can do in painting whatever may be done, as well as any other, be he who he may.
Again, the bronze horse may be taken in hand, which is to be to the immortal glory and eternal honor of the prince your father of happy memory, and of the illustrious house of Sforza.
And if any of the above-named things seem to anyone to be impossible or not feasible, I am most ready to make the experiment in your park, or in whatever place may please your Excellency - to whom I comment myself with the utmost humility, etc."

The translation and the original letter via the Stone blog: http://www.cenedella.com/stone/archives/2010/01/leonardo_da_vincis_resume.html

Great post about investing in gold on The Business Insider

2009-11-19T18:59:00.002+01:00

It's always usefull to know about the alternatives to futures, options and etf's when investing in gold.

http://www.businessinsider.com/11-ways-to-get-into-gold-2009-10

Self fulfilling profecy?

2009-11-17T14:51:00.002+01:00

Great piece by James Saft from Reuters, according to this the markets will go up because managers need the markets to go up.

"With just a few short weeks until the end of the year, look for many fund managers to take on more risk in an effort to salvage their annual return figures.
This is not about fundamentals, this is about something far more important: career risk.
Hedge Fund Research's Global Hedge Fund index, which is broadly representative of the industry, is up just 11.9 percent year to date, while its Equity Hedge index is scarcely doing better, up 12.6 percent. The HFR Macro Fund index is actually down 8 percent, indicating the best paid minds in the business did not see the astounding emerging markets rally and dollar fall coming.
Given that global emerging markets are up something on the order of 60 percent this year, that all global shares are up 30 percent and even the S&P 500 is up 22 percent, we can conclude that a lot of managers are heading into the year-end reporting season with a lot of ground to make up."

...

"The authorities, in their wisdom, have broken the circuit of a crash by flooding the market with enough money to drive up asset prices. This is intended to bring money out from under mattresses and force people to take risks again, to make them dance even if they feel like a fool.
That is unlikely to last forever or to work forever, but a reversal is less likely before January 1 than after."

http://blogs.reuters.com/great-debate/2009/11/17/while-the-music-plays-funds-gotta-dance/

Currency evolution graph

2009-11-17T10:39:00.002+01:00

From FT:

http://www.ft.com/cms/s/0/9a2fdf12-b725-11de-96f2-00144feab49a.html

Derivatives have been around for a while

2009-10-26T13:50:00.001+01:00

"The ledger of the financial broker Charles Blunt contains the details of some 1,500 transactions realized between 1692 and 1695, about a third of which regard the then novel trade in equity options (p.9). The technique had arisen in the 1620s in the commodity market and was proving very useful in the decade following the Glorious Revolution, when some 100 joint-stock companies were floated in London (p.10). During the boom of the early 1690s, it is likely that “several thousand derivatives were transacted each year”."

From Economic History Blog via FT Alphaville

http://premodeconhist.wordpress.com/2009/10/24/murphy-a-2009-the-smartest-boys-in-the-alley-early-derivatives-on-the-london-stock-market

Yes we bottle

2009-10-13T19:50:00.002+01:00

" 63-year-old homeless Russian man has gone from street life to stock market trader after collecting thousands of empty booze bottles for cash, a popular Russian tabloid reported on Tuesday."

From Reuters:http://www.reuters.com/article/oddlyEnoughNews/idUSTRE59C1Z420091013

M&A Potential Targets and Acquires from Credit Suisse

2009-09-17T14:36:00.002+01:00

Via FT Alphaville
http://ftalphaville.ft.com/blog/2009/09/17/72336/an-ma-cheat-sheet/

You can get the full document here:http://ftalphaville.ft.com/lib/data/filecache/attachment/C/S/CS-MA.pdf

The Rich Have Feelings, Too

2009-08-28T16:11:00.001+01:00

Funny article:

"Losing billions is stressful, and the brave financiers who risk other people's money need a way to cool out—hopping on the GV, say, for a bimbo-boffing weekend in the Bahamas. Thanks to the bailout, that's history. The author imagines one fictional highflier's shock as he rejoins the commercial-aviation herd."

From Vanity Fair:

http://www.vanityfair.com/style/features/2009/09/tom-wolfe200909?currentPage=1

It's good to know someone is thinking about these problems

2009-08-19T19:00:00.000+01:00

"When Zombies Attack!: Mathematical Modelling of an Outbreak of Zombie Infection"

By Philip Munz, Ioan Hudea, Joe Imad and Robert J. Smith?

http://www.mathstat.uottawa.ca/~rsmith/Zombies.pdf

Via BBC

http://news.bbc.co.uk/2/hi/science/nature/8206280.stm

Priceless...

2009-08-19T16:53:00.001+01:00

From Reuters:

"LONDON (Reuters) - Visitors to London always have to be on the look out for pickpockets, but now there's another, more positive phenomenon on the loose -- putpockets.
Aware that people are suffering in the economic crisis, 20 former pickpockets have turned over a new leaf and are now trawling London's tourist sites slipping money back into unsuspecting pockets.
Anything from 5 pounds ($8) to 20 pound notes is being surreptitiously deposited in unguarded pockets or open handbags in Trafalgar Square, Covent Garden and other busy spots.
The initiative, which runs until the end of August in London before being rolled out countrywide, is being funded by a broadbrand provider, which says it wants to brighten up people's lives in unusual ways.
"It feels good to give something back for a change -- and Britons certainly need it in the current economic climate," said Chris Fitch, a former pickpocket who now heads TalkTalk's putpocketing initiative.
"Every time I put money back in someone's pocket, I feel less guilty about the fact I spent many years taking it out."
London's police have been briefed about the plan, which will see at least 100,000 pounds given away."

There is a downside, if a pickpocket is caught he can always say he was not stealing, only putting money on his victm pockets.

http://www.reuters.com/article/oddlyEnoughNews/idUSTRE57I45C20090819

Summer Indexes

2009-07-21T15:01:00.004+01:00

Funny story from Bloomberg:

"You might think your summer vacation is nothing more than a week of lazing around, working out how some of those applications on your iPhone actually work, and getting reacquainted with your family.
Not so.
If you are smart, you can tell a lot about how the markets are going to evolve just by keeping a close eye on what is happening around the pool of a luxury five-star resort in Sardinia, Crete or the Algarve."

I belive this one may have some relation with the markets:

"The Blackberry Index: The mergers-and-acquisitions market doesn't take a rest for the holidays. Blockbuster bids for the European fall are being plotted right now. M&A bankers working on a deal can't afford to stay out of the loop for more than a few hours. If there are lots of people scrolling furiously on their BlackBerrys and wearing out their fingers composing memos on a tiny keypad, expect plenty of big deals in September. If the BlackBerrys remain silent, assume the markets are dead."

Read Full Article

Why are Unions against creating jobs?

2009-07-16T09:43:00.002+01:00

Shopping centres in large French cities and stores in hundreds of other tourist destinations will be allowed to open seven days a week after the National Assembly voted to relax Sunday working laws on Wednesday.
Nicolas Sarkozy, French president, who first argued for Sunday opening in 2004 on the grounds that a ban was out of step with modern social habits and France's economic needs, is likely to claim the vote a victory. The changes, which also have to be ratified by the senate, fall far short of a full liberalisation
The issue of Sunday trading is opposed by trades unions, the opposition and a minority in the governing centre-right UMP party.
Some centre-right politicians fought against the move on the grounds that it would harm the interests of local shops that give French high streets their distinctive character."

And from Business Week: "But the proposal is stirring fierce debate, even though it was considerably watered down before being presented to lawmakers. A poll by survey group Viavoice, published on July 6 in the left-wing newspaper Libération, found that 55% of French opposed relaxing the law, and that 57% would refuse to work on Sunday if asked. Fully 85% said Sunday "should remain a day of rest" for most people."

With an employment rate of 8,9% (according to Business Week), the opening of stores on Sunday will clearly create more jobs, and although the mentioned poll states that 57% would refuse to work on Sundays, there are 43% that would probably be willing to work (not considering tha fact that BW dosen't state if the respondents where employed or unemployed).
Unions are clearly protecting current workers, by oposing this law they support the scarcity of jobs, this is good for current workers but bad for unemployeds. They would also have to work harder to assure that no current worker would be required to work on a Sunday without adequate compensation.
I don't know enough about the French reality to discuss the argument that "it would harm the interests of local shops that give French high streets their distinctive character", but in my country the same law is being discussed and this same argument is used, but the true is that you can't find a local shop opened unless you go to a mall.
In my opinion, opening shops on Sundays will have stronger benefits than problems since citizens will be better since they can shop any day of the week and unemployeds will have more opportunities to get jobs

Article from FT

Article from Business Week